LIC Public Listing: From Cash Cow to Sacrificial Lamb?

New Delhi: After regularly fleecing the Life Insurance Corporation of India (LIC) as a cash cow, the Narendra Modi government is reportedly planning to list the country’s largest and most stable financial institution — which has bailed out the government and companies many a time — on the stock exchange, a first step anticipating eventual disinvestment as long-standing calls from industry to privatise the public sector insurance behemoth intensify.

If listed — LIC would be the country’s biggest listed company in terms of market valuation, ahead of current leaders Reliance Industries Limited and Tata Consultancy Services. LIC holds two-thirds share of India’s life insurance market, and the government can hardly wait to give the private sector players a share of the profits.

In corporate finance, a public listing means the company’s shares are on the list (or board) of stocks that are officially traded on a stock exchange — the ownership structure changes in a way that some proportion of the ownership is parcelled out in shares that can be sold and bought and made profits upon by private entities.

In this year’s budget, the government had proposed the increase in minimum public shareholding in listed firms to 35% from 25%.

It is reported that talks regarding the listing of LIC “are in early stages and an Initial Public Offering (IPO) may be made in the future”. However, this will require the amendment of the LIC Act and that the government is “exploring legal opinion”.

This is said to be part of the “attempts to push through an aggressive disinvestment and asset monetisation programme this fiscal”, and is being hailed as part of the “long-term reforms agenda” and “big-bang reforms” of the Modi government.

Reportedly, the proposal is to first sell a small section of the government-owned entity “through an IPO and later dilute the government’s holdings, according to sources.”

News reports talk about how an initial public offering (IPO) of LIC would fetch a huge premium as LIC operates on a small equity base.

On a capital base of Rs 5 crore, LIC last reported profit of Rs 48,436 crore for the 2018 fiscal and assets under management of Rs 31.11 lakh crore.

But LIC was forced to spend at least Rs 48,000 crore — in four years between 2014 and 2018 alone — to help the Narendra Modi government reach its disinvestment targets.

In this period, the Non-Performing Assets (NPAs) of LIC doubled.

Last year, it was even made to buy an entire and entirely sinking bank — the IDBI bank.

Indeed, the Modi government has used LIC as ‘the lender of last resort’ across sectors — it has given soft loans to the Railways, it has subscribed to the power sector’s Ujwal Discom Assurance Yojana (UDAY) bonds, has invested in the National Investment and Infrastructure Fund (NIIF).

LIC is trusted by millions of insurance-holding middle classes as a prudent long-term investor when it comes to their policy funds. The company has investments in dozens of companies, both public and private, as well as bonds.

As for disinvestment, since the 1990s, the public sector insurer has been the government’s go-to buyer when there are none.

Under the Congress regime, LIC paid over Rs 10,000 crore to help the government in disinvestment of the shares of NMDC and NTPC in 2010.

In 2012, as the Initial Public Offering of ONGC shares was faltering, LIC was made to pay Rs 12,749 crore to buy around 84% of the shares being auctioned.

In 2013, LIC picked up almost 71% of the shares on offer during the disinvestment of Steel Authority of India Ltd.

Under the Modi regime, however, this was fast-tracked at an unprecedented pace.

Since 2014, fleecing LIC through the charade of disinvestment has continued.

In 2014, LIC bailed out the Modi government by buying another 5.94% stake in Bharat Heavy Electricals Ltd (BHEL) for Rs 2,685 crore, increasing its stake in BHEL to 14.99%.

In 2015, the insurer was made to rescue the government in the disinvestment of Coal India by buying shares worth Rs 7,000 crore, picking up one-third of the public offer, so that the government could meet its Rs 22,557-crore target.

In 2015, LIC bought nearly 86% of the shares on offer of the Indian Oil Corporation to help its disinvestment sail through, paying over Rs 8,000 crore.

In 2017, LIC bought shares worth around Rs 8,000 crore in the disinvestment of General Insurance Corporation of India and again bought shares worth Rs 6,500 crore in the IPO of New India Assurance Company.

In March 2018, it again bailed out the Modi government by subscribing to 70% of shares on offer in the IPO of Hindustan Aeronautics Limited, paying Rs 2,900 crore.

However, this June, the Modi government did something unprecedented. It made LIC buy an entire bank — that too the most debt-ridden one in the public sector with 28% bad loans — the sinking IDBI bank. LIC was shelling out between Rs 12,000-13,000 crore in the deal.

Then there are the corporate bail-out scenarios in which LIC is called upon to assist — such as in the case of the IL&FS disaster, which LIC could somehow refuse given the scale of mismanagement and the financial fraud.

Given the role played by LIC in keeping the Indian financial markets stable — and given how profitable and well-performing a public sector entity it is — it is anybody’s guess how advisable it is to dilute the public financial character of the company, especially since it is handling the public funds.

Already there have been some protests planned and carried out in different parts of the country by insurance employees’ unions against the proposed disinvestment.